2012 (9) TMI 236 - HC - Service Tax

Penalty - Scientific and Technical Consultancy Service non-payment of service tax assessee submitted that in respect of grant-in-aid consultations, service tax is not payable as per the guidelines issued by the Central Excise Department and CSIR and that the short payment of service tax was under bona fide condition of not properly classifying the funds received by IICT under dutiable consultation charges and exempted charges Held that - Penalty proceedings are not automatic and there ought to be necessary material to show that the assessee is guilty of willful suppression, fraud and misrepresentation. Under Section 80 of the Act if the assessee proves that there was a reasonable cause for the failure to pay the service tax, the competent authority can always drop the penalty proceedings. The question of penalty proceedings would arise only when there could be valid recovery proceedings under Section 73(1) of the Act. That is the reason when the non obstante clause in Section 80 refers to only Sections 76, 77 and 78 and not to Section 73 of the Act. When the limitation period under Section 73(1) of the Act has expired and when the case does not fall under the proviso thereto, the question of penalty proceedings would not arise. Extended period of limitation Held that - Issue of show cause notice dated 21-2-2006 requiring to pay the service tax for the period from 16-7-2001 to 9-9-2004 - non-payment of service tax in respect of five above named projects is due to bona fide doubt regarding the activity

Summary

Issues:
1. Whether the demand for service tax on Scientific and Technical Consultancy services by the Commissioner is valid.
2. Whether the proceedings for recovery of service tax and penalty are barred by limitation.
3. Whether the exemption from penalty proceedings affects the validity of recovery proceedings.

Analysis:
1. The case involved M/s. Indian Institute of Chemical Technology (IICT) being investigated for non-payment of service tax on Scientific and Technical Consultancy services. The Commissioner issued a show cause notice demanding payment of service tax, interest, and penalty. The Commissioner confirmed a demand of Rs. 79,84,670 and interest but dropped the penalty. IICT and the Revenue both appealed. The Tribunal allowed IICT's appeal, leading to the current appeals.

2. The Senior Standing Counsel argued that the penalty exoneration does not affect the recovery proceedings' validity. The issue of limitation arose regarding the non-payment of service tax for specific projects. The proceedings initiated by the show cause notice dated 21-2-2006 were beyond the one-year limitation period under Section 73(1) of the Act, expiring by September 2005. The Tribunal found that the non-payment was not due to circumstances warranting an extension of the limitation period.

3. The Senior Counsel highlighted that the penalty proceedings must be viewed separately from the recovery proceedings. Section 80 of the Act allows dropping penalty if a reasonable cause for non-payment is proven. The absence of a similar provision in the Central Excise Act distinguishes penalty proceedings. The Tribunal's decision that the initiation proceedings were beyond the limitation period rendered the question of penalty proceedings irrelevant. The appeals were dismissed based on these grounds.

In conclusion, the High Court dismissed the appeals as there were no grounds to admit them. The judgment clarified the validity of the demand for service tax, the limitation period for recovery proceedings, and the impact of exemption from penalty proceedings on the overall case.